High Court clears the air on plain packaging laws

December 7th 2012

One of this year’s seminal cases involved the constitutional validity of the Federal Government’s new plain packaging laws for cigarette packets, and whether these laws result in an “acquisition of property” (being various intellectual property rights) on unjust terms such that they are contrary to section 51(xxxi) of the Australian Constitution. The world first plain packaging laws require that nearly all distinguishing marks be removed from cigarette packets aside from a brand or business name written in a specified way.

In April this year British American Tobacco, Imperial Tobacco, Philip Morris and Japan Tobacco argued the case against the Tobacco Plain Packaging Act 2011 (Cth) (“the TPP Act”). They argued that in effect, the laws extinguish their ability to benefit from statutory intellectual property rights (such as trademarks and copyright images) as well as established goodwill and reputation. A majority of the High Court (Justice Heydon dissenting) rejected these arguments on the basis that there had been no acquisition of property within the meaning of section 51(xxxi).

The purpose of the Federal Government’s TPP Act is to reduce sales of tobacco products within Australia by prohibiting the use of intellectual property rights such as copyright images, trade marks and rights associated with the use of a get up, in order to distinguish one brand from another.

The tobacco companies complained that the new laws prevent them from making any real use of their existing intellectual property rights. While they may own the rights, they are unable to make use of them in any meaningful way. On this basis, the TPP Act effectively eliminates these rights [1]. The companies further argued that the Commonwealth had acquired property – being the use of, or control over, the retail branding of tobacco products in Australia [2].

The Commonwealth alternatively argued that there had been no taking of property and in any case, that it had not “acquired” any property [3].

The majority of the Court generally agreed that in order to invoke section 51(xxxi) there must be an acquisition by the Commonwealth and not merely a “taking”. Chief Justice French stated that, “the interest or benefit accruing to the Commonwealth or another person must be proprietary in character” [4].

While the majority of the High Court agreed that the intellectual property rights affected in this case generally amounted to property for the purposes of s 51(xxxi) [5], they were not satisfied that there was any acquisition of property by the Commonwealth.

Chief Justice French concluded that, “On no view can it be said that the Commonwealth…has acquired any benefit of a proprietary character by reason of the operation of the TPP Act on the plaintiffs’ property rights”. His honour further stated that while the companies’ enjoyment of their rights had been restricted, this did not result in any corresponding benefit of a proprietary nature for the Commonwealth [6].

Justice Gummow also concluded that while there had been “sufficient impairment” of the rights in order for it to be characterised as a “taking” of the rights (at least in relation to the plaintiffs’ statutory intellectual property rights) there had been no “acquisition” of property [7].

While the constitutional challenge launched by the tobacco companies was unsuccessful, it is interesting to note that the TPP Act is currently under challenge at the World Trade Organisation level. Three countries, Honduras, Dominican Republic, and Ukraine have all lodged complaints against Australia in relation to the new legislation citing various treaty obligations under the TRIPS Agreement, the GATT and the TBT Agreement [8].

The plain packaging case is not the only case of its kind to consider the constitutionality (under section 51(xxxi)) of intellectual property laws that seek to constrain the rights enjoyed by intellectual property owners.

Earlier this year, in Phonographic Performance Company of Australia Limited (PPCA) v Commonwealth of Australia & Ors [9], the High Court considered the constitutional validity of the one per cent statutory cap on royalties payable by commercial radio stations for the use of sound recordings as prescribed by section 152 of the Copyright Act 1968.

The PPCA argued that there is no justification for protecting the commercial radio industry through a price cap, which in effect prevents the ordinary negotiation of royalty rates with record companies and artists. In particular, it argued that the cap introduced into the 1968 Act is unconstitutional because the imposition of the cap amounts to an acquisition of property (other than on just terms) of the exclusive right enjoyed by copyright owners of sound recordings under the previous Act.

However, the High Court confirmed that the introduction of the cap was constitutionally valid. While it accepted that the exclusive rights enjoyed by copyright owners in a sound recording are property for the purposes of section 51(xxxi), it held that the 1968 Act effectively replaced the 1911 Act. Upon the commencement of the 1968 Act, the previous Act ceased operation [10]. Given this, the cap could not be held to derogate from any right, because those rights only existed under the previous Act.

Justice Heydon stated that, “In short, the 1968 Act did not preserve the … rights under the 1911 Act and the 1912 Act. It abolished those rights. It substituted for them distinct and fresh rights – some more advantageous to those plaintiffs, some less. Thus ss 109 and 152 did not cause any property to be acquired” [11].

It is interesting to consider these cases in light of the present Australian Law Reform Commission’s (ALRC) review into Copyright in the Digital Economy.

While in cases to date, the High Court has concluded that there has been no “acquisition of property” in relation to the limitation of the various intellectual property rights at issue, this does not mean that there could never be a situation where a limit on the enjoyment of intellectual property rights might be held to be unconstitutional. As Justice Heydon states in his dissenting judgement in the plain packaging case, “There is no doubt that a law which affects subsisting exclusive intellectual property rights can attract s 51(xxxi) of the Constitution” [13].

Therefore, when considering whether any new exceptions should be introduced into the present Copyright Act, any limitation of rights must be considered in light of whether their impact might raise arguments that the new law effects an acquisition of property on unjust terms.